With Las Vegas casinos dark since March 17, now seems like the wrong time to think about investing in the companies that operate them, right?
Savvy investors are thinking ahead to which casino companies are positioned to successfully recover when the time comes. And it will come.
A new gold rush is coming, and this one is all about sports. Sports betting has been going on in the U.S. illegally for a very long time. But the May 2018 Supreme Court decision to strike down the Professional and Amateur Sports Protection Act opened the door to legalized sports gambling. And this health crisis may open the door to getting in early on what looks to be a good bet.
Banned for decades, sports gambling is back
Since that court decision, individual states have been introducing legislation to approve full-scale legal sports betting, motivated by the promise of additional tax revenue. So far, 16 states have full-scale sports betting, with 31 other states moving in that direction.
The gambling market is massive, and Morgan Stanley analyst Thomas Allen sees sports betting as the biggest growth opportunity for the U.S. gambling industry. According to Allen, legal sports betting revenue totaled less than $1 billion in 2019 and can be expected to grow to $7 billion by 2025. The total size of the illegal sports betting market is estimated at $150 billion. The competition to convert all those illegal bettors will be fierce, so it's possible Allen's estimates may turn out to be quite low.
Potential returns are magnified by online apps
MGM Resorts (MGM 0.35%) saw the explosive potential of legal online sports betting. Key to the company's plan was the development of BetMGM, its mobile wagering app. MGM Resorts, with more than 30 years of gambling expertise, partnered with the United Kingdom gambling operator GVC Holdings to form a joint venture called Roar Digital to develop the new app.
BetMGM offers mobile betting on professional and collegiate football, and professional baseball, soccer, basketball, and hockey, among other sporting events. The app can switch between sports betting and casino games.
The company rebranded BetMGM sportsbooks at all MGM properties and introduced gaming kiosks offering quick wagering. BetMGM has partnered with Yahoo! Sports, the Buffalo Wild Wings restaurant chain, and others to bring mobile sports betting to every state where it is legal.
Yahoo! Sports "is an exciting partnership for the BetMGM brand and Roar Digital, helping us reach the widest possible audience of engaged sports fans in the U.S.,'' said Roar Digital CEO Adam Greenblatt. "The Yahoo! Sports app and digital sports content [are] enjoyed by 60 million U.S. users every month, while Yahoo! Fantasy Football clocks 9 billion minutes of user time every year. Together, we offer fans a winning combination."
BetMGM is limited to states where sports betting has been approved. So far, it has been rolled out in Nevada, Indiana, New Jersey, and West Virginia. It's not necessary for consumers to be a resident of the state, but they do need to be within the borders of the state to use the app. BetMGM uses geolocation technology to determine precisely where you are when attempting to bet.
The odds on MGM's survival are pretty good
The COVID-19 pandemic that closed all MGM properties has hit the MGM stock price hard. Down 73% year to date, the bottom may not yet be in sight. The uncertainty for MGM is how long the restrictions on travel will last. But it looks like the company has sufficient liquidity and assets to hold out for a long time.
MGM's closure announcement for its Las Vegas casinos said it wouldn't accept reservations before May 1, indicating the closure would be a month and a half at a minimum. Meanwhile, revenue in China is starting to return to normal. Chinese MGM properties accounted for $2.9 billion of MGM's $12.9 billion fiscal year 2019 revenue, or 22.5%. In fiscal year 2019, MGM's China revenue growth rapidly outpaced its Las Vegas growth, 19% to 2% respectively. Revenue from Chinese operations will most likely provide a slight financial cushion for MGM Resorts in 2020.
The company does not appear to be facing any serious liquidity, excessive debt overload, or other financial problems on its balance sheet. Based on fourth-quarter 2019 financial disclosures, MGM had $2.3 billion in cash and $11.3 billion in debt. Of that debt, $11.2 billion is long term and none was current at the time.
Place your bets on MGM Resorts
MGM already has a lot going for it: widespread name recognition, advertising partners, and deep pockets. All are crucial factors when competing against other online sports betting such as DraftKings, FanDuel, and others.
For now, sports betting has come to a screeching halt as professional and college teams have canceled everything until the coronavirus crisis has passed. Fans are wondering when the shutdown will end. "I can promise you no one on this planet can answer that question," Myron Cohen, a global health expert at the University of North Carolina, told Yahoo Sports on March 15.
The long pause is recognized in the professional sports community. "To look at anything shorter than 60- or 90-day scenarios doesn't make a whole lot of sense," Atlanta Hawks CEO Steve Koonin told Yahoo Sports. "This isn't going away in a few weeks. Yesterday, the number of cases in our city literally doubled. I think we have to plan for this to last quite awhile."
MGM is in a very strong position to dominate in the sports betting market when play does finally resume. The company is able to invest whatever capital is needed into its platform. The BetMGM New Jersey app has a 4.5-star rating in the app store, much higher than that of the 2.5-star rating for Caesars' sports betting app.
The BetMGM partnerships are pivotal and include multiyear deals with the NHL, NBA, and MLB. MGM agreed to pay the leagues for their consumer and in-game data and the ability to be called an official partner. Partnering with three of the four major sports leagues, MGM can advertise to consumers who are already actively watching these sports. The visibility of BetMGM through sporting event advertising makes it easy for bettors and those on the fence to wager.
The NFL is noticeably absent from the list of partnerships. That's because it signed an exclusive deal with SportsRadar AG for rights to distribute official NFL data to legal sports-betting operators in the U.S. and abroad. Gamblers can still bet on NFL games through BetMGM, but the app won't be acknowledged as an official partner.
I think MGM is in the pole position to capitalize on the growing sports gambling market, which will be instrumental in helping it recover financially from the current crisis. Considering MGM Resorts' ability to weather the shutdowns, and the potential of the BetMGM mobile sports betting app, I think investing in the stock at any price below $10 per share is a bargain for any long-term investor.